NY Attorney General Files USD 1B Lawsuit on Gemini, Genesis, and DCG
The New York Attorney General, Letitia James, has filed a USD 1 billion lawsuit against crypto companies, Gemini Trust Company, Genesis Global Capital, and their parent company, Digital Currency Group (DCG). The lawsuit reportedly alleges that these companies have deliberately misled over 230,000 investors and concealed losses exceeding USD 1.1 billion.
Letitia James Alleges USD 1B in Losses for Investors
The recent lawsuit is on the "Gemini Earn" investment program, which was introduced in February 2021 as a collaboration between Gemini and Genesis. Cryptocurrency exchange, Gemini introduced Genesis as a trusted lending partner for the Gemini Earn initiative. The program allowed investors to earn interest by lending their crypto assets to Genesis.
However, the attorney general's investigation has disclosed that Gemini misrepresented the lending risks associated with Genesis, despite revising Genesis' credit rating to junk status internally. Shockingly, they continued promoting the earn program as "safe and secure." The lawsuit divulges that Genesis attempted to conceal colossal losses, exceeding USD 1.1 billion, stemming from soured loans after the collapse of Three Arrows Capital (3AC) in June 2022.
"These cryptocurrency companies lied to investors and tried to hide more than a billion dollars in losses, and it was middle-class investors who suffered as a result," James declared. "Hardworking New Yorkers and investors around the country lost more than a billion dollars because they were fed blatant lies that their money would be safe and grow if they invested it in Gemini Earn."
This alleged fraud impacted over 230,000 investors worldwide, with at least 29,000 residing in New York. The lawsuit focuses on reported victims, such as a retired 73-year-old grandmother who lost her entire life savings of USD 199,000 invested in Gemini Earn. Similarly, another New Yorker allegedly lost virtually all his savings of USD 20,500, after believing Gemini's claims that the program had a lower risk compared to other crypto lending options.
NY AG Seeks Permanent Ban on Defrauding Companies
Attorney General James is seeking a permanent ban on these companies from offering securities or commodities in New York. The lawsuit also aims to secure restitution for the deceived investors and disgorge any profits earned through the alleged fraud. This lawsuit represents the latest effort from James to regulate the crypto industry amidst rising concerns about consumer protection and potential misconduct. Earlier this year, she announced legislation to enhance crypto asset regulation in New York.
Her office has already secured settlements from several unregistered cryptocurrency companies, like Coinex and Coin Cafe. She contends that the alleged Gemini fraud highlights the ongoing risks associated with underregulation in the cryptocurrency sector. Gemini responded to the lawsuit on the social media platform X.
"The NY AG's lawsuit confirms what we've been saying all along: that Gemini, Earn users, and other creditors were the victims of massive fraud and were systematically 'lied to' by these parties about 'Genesis's financial condition,'" Gemini stated. "With that said, we wholly disagree with the NY AG's decision to also sue Gemini. Blaming a victim for being defrauded and lied to makes no sense, and we look forward to defending ourselves against this inconsistent position."
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